So I started this game and it presents me with a bunch of difficulty options, with the "easiest" one being: Normal.

What gives?

How does Outlast handle difficulty levels? What changes between them?

And is Normal really the equivalent of Easy?

I usually play on Normal, and the if I enjoy the game, I'll up the ante. But the multiple harder difficulties seem a little excessive.

The main differences I have noted are the amount of batteries you can carry and the hits you shall endure before dying.
The highest difficulty mode (Insane)is a "YOLO" I think, with saving disabled and NO checkpoints. I finished the main game on normal a long time ago and I had 10 batteries. Recently, after grabbing the DLC, I am playing on the second most difficult level (Nightmare) and I can carry only up to 2 batteries. The monsters seem to be as dumb as in normal, but they are able to kill you faster.

Personally, I wouldn't try Insane, as having to replay the entire game for a mistake and having to finish it on one run, kills the fun for me in these games. I think Nightmare is a good level because you have limited batteries, and you you must save them, so you will have your cam's nightvision off more time, creating a scarier game. Nevertheless, you can get still enough batteries to play the game and not having trouble because of not seeing anything.

I shall paste also info from the wiki for a more precise answer:

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Difficulties:

Initially, Outlast only had a standard difficulty. After its update, the game features three standard difficulties; Normal, Hard and Nightmare. When playing on the regular difficulty, enemies are less aware of the player's whereabouts. As the difficulty increases, the door shut sound becomes more loud, The Variants become stronger and wiser, being able to kill Miles very easily and making it difficult for the player to hide, as they thoroughly search rooms and various hiding spots. In addition to all of the previously mentioned disadvantages, the Nightmare difficulty limits the player to a maximum capacity of only 2 batteries. After the sixth update on Steam, players who download Outlast from torrents are able to play in Hard and Nightmare difficulties. In addition to all of these difficulties, the PlayStation 4 and Xbox One versions of the game contain an Insane difficulty. It has neither checkpoints nor saves, meaning that if the player dies, they will lose all of their progress and be forced to start from the beginning of the game. After the April 30th update, Steam version of the game also has the previously exclusive Insane difficulty.
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Wow, thanks for the detailed response! I think based on that though, I'm not sure if I will play the higher difficulties.

I'm now maybe close to the end of the game on Normal. Here's some thoughts:

* I think I misunderstood the whole battery thing. I thought it drained when you had your camera up, rather than have your flashlight on. As a result, I played a bit of the game without filming it. I probably lost some of the "lost footage" vibe the devs were going for.
* It's a lot gorier than other horror games I've played. That's kinda cool, as I wasn't expecting that.
* I think Normal is fine as a first playthrough particularly since I don't even know what's going on, and the game often makes you run away, so you often miss rooms anyway.
* It's more jump-scarey than anything else, which is a plus and a minus. My favorite horror game is still Fatal Frame because I find the atmosphere truly terrifying, but Outlast does manage to create a feeling of dread throughout its jump scares.

I am glad I could help you :)

As for the batteries, yes, they only are drained when you are using the "nightvision". In fact, the game is supposed to be played with the cam always up, because of "roleplay" (let's not forget that we are inside of the skin of a journalist trying to unmask all this madness) but also you shall get more notes. There are two kinds of notes, the ones you get (that would be documents more than notes though) and the ones our guy takes when he films some strange thing. So if you play with your cam down and intend to do a second playthrough someday, I would advise to play with the cam filming, as is a more "full experience". (I personally think it also adds something to the experience, making me to inmerse more in the game, but that is very subjective :P)

Regarding the difficulty, I agree. My first (and for now only) run with the main game was in normal, and felt adecuate. Right now, I am playing the DLC on the second most difficult setting and it is not as bad. The bad guys open lockers and search under beds, but if they did not spot me hiding, they never look where I am hiding. The only drawback is as I said, the tow batteries limit, but so far I am liking it. I never actually ran out of batteries, but the lack of storage creates more tension.

And yes, the game has a lot of gore, and while some people complain, I think it makes a very unique game, because I am having trouble trying to remember other games that focus on the visceral side of horror. I agree that the most scary part are the jump scares, but I think the game creates a fantastic atmosphere, that even if weaker in horror, is filled with tension. Fatal Frame focuses more on pure horror and is a scarier game (so scary I have not finished it yet :P).

I would like to recommend you a game called "Forbidden Siren" (I think that outside of Europe is more commonly referred as "Siren"). It is, like Fatal Frame, a PS2 japanese survival horror, and if you ask me, a very scary one.